Understanding Support and Resistance is essential if you want to successfully interpret Forex charts, but before we even begin let’s define the terms Support and Resistance, just so we have a clear understanding of what they are.
RESISTANCE levels exists above the current price, and act as a barrier to the price increasing above that level.
Imagine you were inside your house and tried to jump up through the roof. You would encounter resistance from your ceiling, and it would be very hard to break through that resistance.
SUPPORT levels exist below the current price, and act as a barrier to the price falling below that level.
When you fall back down from your previous jump you will encounter support from the floor when you hit it. You would have to do a lot of stomping to break through the support of your floor!
It is important that you know where the current support and resistance levels are because these levels are places where price direction can possibly bounce and reverse, or break through and take off like a rocket! So if you know ahead of time where they are you can take profit on your trades before the price reverses against you, and you can enter into new trades!
So how do we find these levels? Let’s find out in the next lesson.